Government forecaster says house price growth has peaked and will slide to three per cent by 2020

Britain will not see runaway house price growth, official forecasts suggest, despite fears that reforms to stamp duty would send values soaring.

The housing boom that saw prices jump by nearly 12 per cent this year has peaked this autumn, the Office for Budget Responsibility said.

Annual price increases will cool to six per cent by next summer, and slide to three per cent a year by the end of the decade, the OBR said.

The forecaster said there was a “surprise” slump in house sales this autumn, with 33,000 fewer houses sold than the forecast of 338,000. It said that new stringent checks introduced by the Bank of England on mortgage applications had delivered a “larger and more persistent expect than we expected”.

“Recent indicators suggest house price inflation is slowing,” the OBR said, adding the inflation of 11.7 per cent in the third quarter of the year was a “peak”.

The OBR said that the reform of stamp duty would have “significant effects” on the housing market, increasing prices at the bottom of the market where the tax has been cut, and suppressing those at the top where the levy has been increased.

But Mr Osborne said he was not prepared to leave the “unfair, punitive” cliff-edge stamp duty system in place purely for the sake of controlling the housing market.

“We should not be using unfair, punitive taxes that are very badly designed to achieve the goal of having a stable housing market.”

Mr Osborne said that the Bank had the power to “turn the tap off” if it appeared that a housing bubble was on the horizon, by controlling mortgage offers.

“The Bank of England now has the weapons it can deploy if it sees there is a problem emerging.

“But this is something the Bank of England and the Treasury and myself have got to remain, of course, very vigilant on.”

In a boost to owners, the decline in prices is going to be slower than previously forecast in March, due to cheap credit as interest rates remain low, and a lack of new houses coming onto the market. Overall, prices are expected to rise by more than 30 per cent by 2020.

There are also concerns that households debt levels are set to soar beyond the peaks on the eve of the financial crisis. In a dramatic upwards revision, the average family will have debts equivalent to 170 per cent of their annual income by 2018, rising to over 180 by the end of the decade.